The UK government’s decision to impose a 65% tax rate on the nation’s offshore energy providers will do long-term damage to the industry – and raise the risk of future energy shortages, OEUK has told the government.
The warning, from Deirdre Michie, OEUK’s chief executive, accompanies the trade body’s response to the government’s consultation on a draft bill for an ‘Energy Profits Levy‘, the name for the new tax imposed on the companies supplying the UK’s oil and gas.
In a letter sent today to the Chancellor on behalf of the offshore energy industry, OEUK warns that the new tax risks driving away UK oil and gas investment – just when it’s most needed to maintain the UK’s future supplies.
OEUK also reminded government that its climate ambitions would not be helped by this move because the fiscal shock of the levy would deter the investment needed to underpin the net zero transition.
The government consultation on how the new tax will work closes just before midnight this evening (June 28) with many of the UK’s offshore oil and gas producers understood to have raised similar concerns.
The levy imposes a new 25% surcharge on the profits made by companies producing oil and gas on the UK continental shelf. This is in addition to the 40% tax rate they were paying – already the highest of any UK sector. The total effective tax rate is 65%, meaning the total tax rate is over 3 times greater than any other UK sector.
The UK gets 75% of its total energy from oil and gas. The nation’s oil and gas operators collectively produce about a third of the nation’s gas and the equivalent of three-quarters of its oil. Those resources have been a key factor in protecting consumers from the shortages hitting Europe following Russia’s invasion of Ukraine.
Production from those existing oil and gas fields is however, predicted to dwindle rapidly in the next few years without further investment as they age and become depleted. It means continued investment to open new resources is essential simply to maintain flows at around current levels.
OEUK warned that the UK already faces multiple threats to its energy security from this winter, including:
- Depletion of existing UK oil and gas fields
- A continued or escalating conflict in Ukraine
- European shortages as Russia cuts supplies
- Very limited UK ability to store gas against winter shortages
- Surging global demand for oil and gas that could add to shortages and price rises
Commenting on the letter, OEUK Chief Executive Deirdre Michie said:
“This is a tough tax for our industry, and it could reduce our ability to invest in the UK’s future energy supplies just as energy security is moving to the heart of national security. Right now, the world is at risk of shortages and price rises that will have huge impacts on consumers and on our economy. So we should be doing all we can to maximise our own supplies, not deterring investment with new taxes.”
“We all want to move quickly to a cleaner energy future, but our ambitions must be grounded in realism if we are to avoid dramatically increasing our reliance on imported energy in the short term. It’s why we continue to raise concerns about the impact of the levy on the UK’s energy security, economy and thousands of jobs.